What, No Gloom & Doom? Economists Back Off Recession


The race to the bottom in picking economic growth figures this year seems to have stopped nearly as quickly as it started.

No, that doesn’t mean that economists suddenly believe US gross domestic product will hit the pace it normally would see two years after the end of a recession.

But Wall Street’s biggest names have backed off earlier doom-and-gloom predictions of near-zero growth and now believe the economy at least has a better chance of avoiding an outright recession .

The impetus for the optimism: Thursday’s trade balance report which showed that the US deficit unexpectedly slid to $44.8 billion in July from $51.6 billion in June, primarily on the strength of a 3.6 percent surge in exports.

Nomura Global economist Aichi Amemiya was one of the first out of the gate, pushing his third-quarter forecast from 2.4 percent GDP growth to 2.6 percent.

While not exactly a major vote of confidence for the economy, it reflects at least a departure from some who think another recession is on the horizon.

“All in all, international trade activity in July was much stronger than we had thought which raised our outlook for Q3 GDP,” Amemiya wrote in a note. “Looking ahead, given the deterioration in consumer sentiment and cautious stock building by retailers, weak imports could have kept the US trade balance from widening significantly in August.”

Goldman Sachs has helped lead the charge in GDP downgrades, with a forecast of 1 to 1.5 percent growth.

But Goldman chief economist Jan Hatzius said in a CNBC appearance on Thursday that he also believes things have improved and the firm is likely to change its outlook.

“We’ve been working with a 1 percent number for the third quarter, but it now actually looks like it might come in a little stronger than that,” he said.

Bank of America Merrill Lynch, which began slashing its GDP projections all the way back in April, before the worst of the economic headlines began to hit, softened its position as well.

“The trade deficit for July came in appreciably smaller than expected as exports posted an impressive gain while imports fell,” economist Gary Bigg wrote. “ From a third quarter growth perspective, the narrowing in the trade balance implies a positive trade contribution to real GDP growth.”

The firm has taken its projection up to 2.1 percent for the quarter.

The upward revisions, of course, beg a question: If economists jumped the gun earlier by revising their projections down, might they be doing the same now, only in the opposite direction? After all, it is just one data point, and a wildly volatile one at that.

“With global demand clearly weakening…the prospects of the external sector consistently and significantly supporting GDP growth are slim,” Paul Dales, senior US economist at Capital Economics in Toronto, wrote in a note.

Capital has been fairly consistent amid the downgrade mania, sticking to low growth expectations as the economy grapples with persistently high unemployment and a maddeningly weak housing market.

In holding to its 2.5 percent forecast for the third quarter, the firm sees a technical recession as unlikely as robust growth.

“Overall, while July figures provide further evidence that the economy continued to expand in the third quarter,” Dales wrote, “the outlook for US exports is far from rosy.”

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